When markets are shocked, they can exhibit "high"-frequency price fluctuations. Equilibrium thinking, in other words classical finance, fails here. In particular converse trading strategies can both make money.
A useful theoretical approach is to partition the price/trading space by frequency.
We show evidence for viewing these conditions from the paradigm of physical turbulence.
(This is work with T. Leung)
Mike Lipkin has been an options market maker for the past 21 years on the American Stock Exchange. He has also done research in derivatives, producing a generally accepted theory of the pinning of optionable stocks on expirations. Current research involves take-overs, earnings and special announcements, all topics covered in the course, Experimental Finance, he co-developed and teaches here with Sacha Stanton.
His background includes a PhD in Chemistry, but insists that the best training he has received for derivatives work has come from playing bridge.
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